Dangote siege sends shivers to Kenyan cement firms

Kenyan cement manufacturers have been forced back to the drawing board to protect their market share from a strong onslaught on their turf by deep-pocketed producers in Tanzania such as Dangote.

Over the years, Tanzania has rumped its production capacity with the entry of well funded players. However, it is Dangote that has become the waking nightmare for Kenyan cement firm managers.

Dangote has surrounded markets that have been previously controlled by Kenyan producers. With its facility in Ethiopia, Dangote is orchestrating a market take over in northern Kenya with irresistible prices for consumers and margins for distributors.

Dangote cement is retailing at Sh7,500 per tonne in northern Kenya compared to Sh11,000 from Kenyan producers. Similarly, in Tanzania, Dangote’s entry pushed cement prices to Sh8,000 per tonne leading developers in border towns to import cement from Tanzania. Dangote Cement has also constructed a plant in DR Congo which is also exporting to the Western towns of Uganda and Rwanda.

Kenyan producers are under a Dangote siege and one wrong move could push them out of business. Last week, Kenyan producers’ fight-back strategies began to unfold with the launch of Sh28.5 billion clinker facility by National Cement in Kenya.

Most of the Kenyan firms have been dependent on expensive imported clinker raising the operational costs and denying them wiggle room in case of a prolonged price war. National Cement became the third producer with its own clinker production facility after Bamburi and Savannah Cement.

For Bamburi and Savannah, plans to deal with impeding threat from the Tanzanian producers has mainly been in the expansion of production capacity to 900,000 tonnes and 2.4 million tonnes per year respectively.

Whether these strategies will tame Dangote and other Tanzanian producers is a matter of wait and see. ABC Capital head of corporate finance Johnson Nderi says Kenyan producers will need more than boardroom strategies to survive the invasion.

“The Kenyan government has to review the tax structure for the producers if it wants them to survive competition,” says Nderi. Nderi says the producers also have to think beyond capacity expansion. “We cannot always be competing on price.

There are other areas to compete on such as product differentiation, distribution networks, among others,” he says. Besides Dangote, who built a three-million-tonne facility in Mtwara Tanzania, other players have pitched tent in Kenya’s southern neighbour and are set to eat into Kenya’s cement export market.

Two other Tanzanian new players that have sent cold shivers in Kenyan producers are EAM and Sungura who are building facilities with a four-million tonne capacity. But it is EAM that is the biggest threat because it has stated its focus will be in the export market.

“EAM Company and Sungura Cement plan to construct a three million-tonne and one-million-tonne plants respectively in Tanga with EAM expressing its focus on exports and a possibility of ballooning its production capacity to seven million tonnes should the government agree to its exporting terms,” says Dyer and Blair in an investment brief to its clients seen by People Daily.

Currently, Tanzania production capacity is 8.85 million tonnes per year and is likely to hit 12.4 million tonnes before the end of this year compared to Kenya’s eight million tonnes. According to investment analysts at Standard Investment Bank (SIB), Tanzania is set to overtake Kenya as the biggest cement exporter this year.

“Given new capacities we expect Tanzania’s capacity utilisation to average 69 per cent over the forecast period. At this utilisation rate we forecast decline in imports to less than one per cent of the market share in 2018 and exports averaging 12 per cent of total production,” says SIB in an investment brief to its clients.

Already, some of the Kenyan producers such as Athi River Mining (ARM) have been pushed into the red. ARM, which produces Rhino brand of cement, has posted huge losses for two years consistently. In 2016, the firm posted Sh2.8 billion while its half year results for 2017 showed it has posted a further loss of Sh1.4 billion.

Although the firm has not directly blamed Dangote for its current woes, it’s not difficult to see the hand of the firm owned by Africa’s richest man Aliko Dangote. ARM firm attributed the losses for the two years to stiff competition in the Tanzanian market and a ban on imported coal.